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33940 Federal Register / Vol. 53. No. 170. / Thursday. September 1. 1988 / Rules and Regulations
approve for liability coverage, EPA.
reviewed the other financial assurance
programs within EPA, other Federal
agencies, and several States. The
Agency first analyzed the financial
mechanisms already approved for use
for closure or post-closure care financial
assurance since the regulated
community could be expected to be
familiar with them. Many of these
mechanisms were mentioned by
commenters on the August 21,1985
NPRM as potentially useful Other EPA
financial assurance requirements or
proposed requirements, such as the
requirements for underground injection
wells and underground storage tanks,
were also reviewed to identify the
mechanisms, if any, used in. those
programs for third-party liability
coverage.
The Agency considered several
characteristics of the mechanisms that
could affect their suitability for the
coverage of third-party liability claims,
including (1) availability; (2) cost; (3)
whether they are likely to be valid and
enforceable contracts under special
provisions of State law, such as laws
regulating the business of insurance; and
(4) whether they are capable of being set
up in ways that do not require EPA to
act as a "claims adjuster" osr otherwise
act to determine the merits of third-
party liability claims brought against
TSDF owners or operators.
On the basis of these analyses, EPA
determined that letters of credit, surety
bonds, guarantees, and trust funds
provide adequate third-party liability
coverage. The rationale for
authorization of these instruments is
described below in the discussion of
each instrument
Other mechanisms suggested by the
commenters on the Augustl985 NPRM
and analyzed by EPA included security
interests, indemnity contracts, reserve
funds, captive insurance pools, and
government-supplied insurance or loan
guarantees. As discussed in Section V of
today's preamble, EPA has concluded
that these instruments are inappropriate,
with the exception of captivci insurance
pools and risk retention groups. Captive
insurance pools and risk retention
groups are authorized under the current
regulations.
The financial mechanisms authorized
in today's rulemaking, with the
exception of the guarantee, are currently
approved mechanisms for closure or
post-closure care under 40 CFR Parts 264
and 285, Subpart H. (Performance bonds,
which are authorized for use by owners
or operators of permitted facilities for
assurance for closure and post-closure
care, are not included because they are
not adaptable to liability coverage;
instead, an analogous mechanism, the
payment bond, is allowed.) The
requirements for these financial
mechanisms parallel the requirements
for financial mechanisms authorized for
closure or post-closure care. However,
. some provisions of the mechanisms
have been adjusted to address issues
that arise only in the context of liability
claims. Features of the mechanisms that
differ include the designation of the
beneficiary, exclusions for categories of
damages and obligations, the claims-
payment trigger, the certification of
validity and enforceability, and
cancellation provisions. These features
are described more fully in Section IV of
today's preamble.
A Letter of Credit
Today's rule authorizes owners or
operators pf hazardous waste TSDFs to
use-letters of credit to satisfy the RCRA
third-party liability coverage
requirements (40 CFR 284.147(a)(3),
264.147(b}(3). 265.147(a](3), and
285.147(b)(3)). Letters of credit are
commitments by a financial institution
(e.g., a bank), whose letter of credit
operations are regulated and examined
by a State or Federal agency, to provide
funds if appropriate documents are
presented. In general, letters of credit
are instruments that can be adapted for-
various purposes.3 Banks contacted by
EPA have indicated that they would
consider issuing letters of credit for
liability claims for their established
customers. EPA believes that letters of
credit may be more readily available to
owners or operators than many other
mechanisms, if the owner or operator
has an established relationship with a
qualifying financial institution and can
provide adequate collateral.
1. Features of Mechanism. A letter of
credit is a financial instrument under
which an issuing institution (the issuer);
generally a bank, undertakes to meet a
monetary obligation of its customer (the
account party) if the bank is presented
with specified documents. The issuer, in
return for a fee, becomes the primary
obligor. A third party, the beneficiary,
initiates payment by making a claim
directly on the issuer. Thus, a letter of
credit is an instrument that substitutes
the issuer's superior credit for the
account party's credit.
The instrument authorized in today's
rule is an irrevocable stand-by letter of
credit in which the third-party
beneficiaries are any and all persons
US. General Accounting Office, Staff Study.
"Financial ServicesDevelopments in the Financial
Guarantee Industry." GAO/GGD-87-84. June 25.
1987, pp. 9-13.17-18 discusses letters of credit as
financial guarantees.
who may be damaged by a hazardous
waste release from the facility whose
owner or operator has secured the letter
of credit. The irrevocable nature of the
instrument precludes its cancellation
prior to the end of a required one-year
term by the issuer or the owner or
operator. After the one-year term, the
letter of credit will automatically renew
for another year unless, 120 days before
the expiration date, the issuer notifies
the owner or operator and the Regional
Administrator of a decision not to renew
the credit (40 CFR 264.151(k)).
2. Who May Provide A Letter of
Credit. Today's rule provides that letters
of credit for liability coverage must be
provided by an authorized financial
institution regulated by a Federal or
State agency (40 CFR 264.147(h)(2) and
265.147(h)(2)). EPA has established these
requirements, which parallel the
requirements for letters of credit
providing assurance for closure or post-
closure care, to ensure the financial
viability of the issuer of the letter of
credit. The viability of the commercial
banks and savings and loan institutions
that may issue letters of credit is
scrutinized by several oversight
organizations, including the Federal
Reserve, the Federal Deposit Insurance
Corporation, the Federal Savings and
Loan Insurance Corporation, the
Comptroller of the Currency, arid State
banking commissioners. These
regulatory bodies attempt to ensure that
regulated institutions take actions
necessary to avoid bankruptcies. EPA
concluded that it would be duplicative
to establish additional requirements to
ensure the solvency of bank and savings
and loan institutions issuing letters of
credit.
3. Validity of Letter of Credit
Providing Liability Coverage. To ensure
that letters of credit may be used to
provide liability coverage, EPA
reviewed the status of legal doctrines
that might call into question the
authority of a bank to issue a letter of
credit for liability coverage, and
concluded that no significant legal
obstacles currently exist to such use of
letters of credit. EPA believes that the
proposed use of letters of credit in
today's rule is analogous to the use of a
letter of credit in situations that courts
have approved. The Agency, therefore,
concluded that use of a letter of credit
for financial assurance for third-party
liability coverage is both valid and
enforceable.
B. Surety Bond
Today's rule authorizes owners and
operators of hazardous waste TSDFs to
use surety bonds to satisfy the RCRA
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Federal Register / Vol.. 53, No. 170 / Thursday, September 1, 1988 / Rules and Regulations 33541
third-party liability requirements (40
CFR 284.147{a)(4), 264.147(b)(4),
265.147(a)(4), and 265.147(b)(4)). The
adoption of surety bonds as an
additional assurance mechanism for
liability coverage was widely advocated
by the commenters on the August 21,
1985. NPRM.
1. Features of Mechanism. Surety
bonds represent agreements between
three parties: The principal (i.e., the ,
facility owner or operator); the obligee
(i.e., third-party liability claimants) to
whom the principal promises to
complete a specific act; and the surety,
who assures the obligee that the
principal will fulfill its obligation and, if
the principal fails, that the surety will
fulfill the principal's obligation to the
obligee. Thus, the surety bond
authorized today guarantees that if the
owner or operator fails to satisfy valid
third-party claims, the surety will pay
such claims. A surety company is
entitled to reimbursement from the
principal when it makes a payment
under a bond.
There are two types of surety bonds:
payment bonds and performance bonds.
Payment bonds guarantee that the
principal will pay a certain sum to
identified parties under the conditions
named in the bond,'and if the principal
fails to make the payment or payments,
the surety will make the payment or
payments. Performance bond guarantees
that the principal'will perform a certain
act and, if the principal fails, that the
surety will either perform the act for the
principal or pay someone else to
perform it The surety bond provided in
today's rule is a payment bond, because
the obligation it guarantees is limited to
the principal's payment of third-party
liability claims to satisfy the Subtitle C
liability requirements. "
A surety company's liability under a
payment bond is limited to the "penal
sum," which is the amount of coverage
guaranteed by the bond. The penal sum
of the payment bond being authorized
by today's rule has two parts, the per-
occurrence limit and the annual
aggregate limit (40 CFR 264.151(1)). If the
payment bond covers claims resulting
from both sudden accidental
occurrences and nonsudden accidental
occurrences, a separate penal sum will
be identified for each type of coverage
(i.e., such a bond would have four penal
sums).
The payment bond authorized in
today's rule will remain in effect unless
and until the surety notifies the owner
or operator and the Regional
Administrator of proposed cancellation
by certified mail. Cancellation will
become effective 120 days from the
receipt of notification (40 CFR 264.151(1),
conditions clause (7)).
.2. Who May Provide Surety Bonds.
Today's rule requires that surety
companies issuing payment bonds to
assure liability coverage must be listed
by the Department of Treasury in
Treasury "Circular 570" as surety
companies that may issue bonds to the
Federal government (40 CFR 264.147(i)(2)
and 265.147(i)(2)]. This requirement
parallels the closure and post-closure
care financial assurance regulations and
other financial assurance requirements
involving surety bonds and assures that
the surety company is subject to
regulatory oversight by some
government agency. To qualify for such
a listing, surety companies must comply
with the law and regulations of the
Department of Treasury (as specified in
sections 9304 and 9308 of Title 31 of the
United States Code). The names of the
companies meeting these Treasury
requirements are published on July 1 of
each year by the Department of the . .
Treasury in "Circular 570; Surety
Companies Acceptable on Federal
Bonds."
3. Validity of Surety Bond Providing
Liability Coverage. EPA has contacted
several State insurance commissions to
determine if States would view a surety
bond for third-party liability coverage as
subject to the State insurance laws. In a
number of States, surety companies are
already regulated by the State agency
that is responsible for insurance. EPA
found that in other States, the issue of
whether the surety bond constitutes
insurance may be examined on a case-
by-case (i.e., facility-by-facility or bond-
by-bond) basis. Many States may
consider it necessary for the firm
providing the surety bond to qualify
under the State's surety or insurance
laws as an insurer. To address this
issue, the rule does not allow owners or
operators to use a surety bond to
demonstrate financial assurance unless
the Attorneys General or Insurance
Commissioners in the States in which
the surety is incorporated and in which
the facilities covered by the bond are
located certify that the mechanism is
valid and enforceable (40 CFR
264.147(i)(4) and 265.147(i)(4)). (See
Section IV.C of this preamble for further
discussion.)
C. Guarantee
Today's rule extends the use of
guarantees for liability coverage to
allow guarantees provided by firms that
are not the direct parents of facility
owners or operators (40 CFR
264.147(g)(l) and 2B5.147(g)(l)). The use
of a parent corporate guarantee for
liability coverage was authorized in an
interim final rule on July 11,1986 (51FR
5350) and promulgated as a final
regulation on November 18,1987 (52 FR
44314). Under this rule, liability coverage
may be provided by parent firms that
directly own at least 50 percent of the
voting stock of a subsidiary firm.
Several commenters on the interim final
rule urged EPA to allow non-parent
firms to provide guarantees. After
analyzing the validity and enforceability
of guarantee contracts by non-parent
firms, the Agency is authorizing
guarantees provided by corporate
grandparents and by a corporate
"sibling" firm (a firm whose parent
corporation is also the parent
corporation of the owner or operator).
The Agency also is allowing guarantees
by other related and unrelated firms,
provided that such firms have a
substantial business relationship with
the owner or operator.
The guarantee in today's rule
incorporates the features of the
November 18,1987 rule for parent
guarantees with minor revisions
necessary to address non-parent
guarantees and to ensure consistency
with the other instruments allowed by
today's rule. Since today's rule
incorporates the features of this earlier
rule, an extensive discussion of the
guarantee has not been included in this
preamble. Only the distinctive features
of the non-parent corporate guarantee,
the definition of who may provide the
guarantee, and the basis upon which
EPA concluded that it would be a valid
and enforceable mechanism are
discussed below.
1. Features of Mechanism. The
authorized guarantee is an instrument
by which a firm promises to pay the
liability obligations of the owner or
operator is" the owner or operator does
not do so. The firm providing the
guarantee (the guarantor) must submit
proof that it passes the financial test
requirements of §§ 264.147(f)(l) or
265.147(f)(l). If the guarantor
subsequently becomes- unable to pass
the financial test, the owner or operator
must obtain another financial assurance
mechanism for liability coverage.
2. Who May Provide Guarantees.
Today's rule extends EPA's
authorization of corporate guarantees
beyond the previously allowed parent
guarantee to include multi-tier
guarantees by corporate grandparents,
cross-stream guarantees by corporate
siblings, and guarantees by firms with a
"substantial business relationship" with
the owner or operator. In general,
today's rule authorizes three types of
guarantees between corporations: (1) A
guarantee by a parent corporation or
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principal shareholder oi: a subsidiary (a
"downstream" guarantee), (2) a
guarantee by a sibling corporation (a
"cross-stream" guarantee), and (3) a
guarantee by a firm that has a
"substantial business relationship" with
the corporation that receives the
guarantee (40 CFR 264.147fg)fl) and
285.147(g)(l)).
A simple single-tier downstream
guarantee is one where :the direct parent
corporation guarantees the obligation of
its subsidiary. A multi-tier downstream
guarantee (consisting of three tiers of
ownership, for example) is a guarantee
by which the corporate grandparent or
great grandparent (i.e., the ultimate
owner of the subsidiary) provides a
guarantee for the subsidiary. A cross-
stream guarantee is a guarantee
between sibling corporations, e.g., a
"brother" subsidiary's guarantee of a
"sister" subsidiary where the siblings
are owned by the same parent Both of
these categories of guarantees have
been tested in legal actions and are
considered strong and binding legal
obligations although analyses of
guarantees between siblings typically
assume that some economic relationship
exists between the two corporations
aside from the guarantee*.
If the guarantee is being provided by a
corporate grandparent or sibling, the
guarantor must provide the guarantee to
the owner or operator directly,
irrespective of the number of intervening
levels of ownership that exist in the
corporate structure (40 CFR 264.147(glfl)
and 285.147(g)(l)). For example, a
corporate grandparent would provide a
guarantee for the owner or operator's
firm directly, not through the corporate
parent
Today's rule also authorizes unrelated
firms and other related films, aside from
parents and siblings, that have a
"substantial business relationship" with
the owner or operator of a hazardous
waste facility to provide guarantees [40
CFR 264.147fe) and 285.147(g)). In
authorizing guarantees by these other
related and unrelated firms, EPA sought
to ensure that a valid and enforceable
contract was created. To 8his end, the
Agency is requiring these firms to
demonstrate a substantial business
relationship with the owner or operator
to ensure that the guarantee is a valid
contract Under fundamental principles
of contract law, contracts must be
supported by "consideration."
Consideration is generally defined as a
legal detriment that has been bargained
for and exchanged for the promise. The
general principle underlying the concept
of consideration is that the law will not
enforce gratuitous promises.
The issue of consideration arises in
the context of all guarantees; however,
parent and sibling firms authorized to
issue guarantees under today's rule can
demonstrate consideration by the
inherent benefits or detriments that
accrue to the guarantor firm by virtue of
its corporate relationship with the
owner or operator. As noted above,
courts have generally recognized that
guarantees offered fay a parent or sibling
corporation are valid and enforceable.
EPA believes that other related and
unrelated firms should be able to
demonstrate sufficient consideration for
the contract if they have a substantial
business relationship with the owner or
operator.
The Agency's review of legal
literature indicated that a sufficiently
close business relationship between two
firms could be comparable to the shared
economic interests that typify the
relationship between corporate siblings
and between a parent and its
subsidiary. Because it is these mutual
economic interests that underlie the
validity and enforceability of
downstream and cross-stream
guarantees, the existence of such
interests between other types of firms
should enable guarantees between these
firms also to be valid and enforceable.
No single legal definition exists of what
constitutes a business relationship
between two firms that would justify
upholding a guarantee between them.
Furthermore, such a determination
would depend upon the application of
the laws of the States of the involved
parties. Thus, in defining the underlying
business relationship that produces an
acceptable guarantee, the Agency
provides a broad framework for
analyzing business relationships while
acknowledging the primary role of State
law. -
In today's rule, EPA is defining
substantial business relationship to
mean "the extent of a business
relationship necessary under applicable
State law to make a guarantee contract
issued incident to that relationship valid
and enforceable. A 'substantial business
relationship* must arise from a pattern
of recent or ongoing business
transactions, in addition to the
guarantee itself, such that a currently
existing business relationship between
the guarantor and the owner or operator
is demonstrated to the satisfaction of
the applicable EPA Regional
Administrator" (40 CFR 264.141(h)). A
guarantee contract by itself, would be
inadequate- to demonstrate a substantial
business relationship between two
parties. However, an existing contract to
supply goods or services, separate from
the guarantee contract, could supply
evidence of such a relationship. An
example of such an arrangement might
be a contract for hazardous waste
disposal between a generator and a
disposal facility. Evidence
demonstrating such a substantial
business relationship is required to be
provided in the letter from the Chief
Financial Officer of the guarantor.
In addition to demonstrating the
existence of a substantial business
relationship, these other related and
unrelated guarantors must describe the
value that they received in
consideration for the guarantee contract.
In some cases, preexisting business
relationships, no matter how
substantial, will be insufficient fay
themselves to demonstrate
consideration because they will not
have been bargained for to induce the
promise in the guarantee contract For
this reason, these guarantors must also
describe the consideration for the
contract in the letter from their Chief
Financial Officer.
EPA considered as a preliminary
matter whether corporate guarantees
would be regulated as insurance
contracts under States' insurance laws.
EPA was concerned that guarantors
could subject themselves to States'
insurance laws through the issuance of
guarantees. This issue has arisen in
other of the Agency's financial .
responsibility rulemakings, including the
proposed financial responsibility
requirements for underground storage
tanks containing petroleum (52 FR12786,
April 17,1987). A discussion of the
applicability of State insurance laws to
various mechanisms, including
corporate guarantees, is contained in the
docket for that rulemaking, in the
"Supporting Document for Proposed
Underground Storage Tanks Containing
PetroleumFinancial Responsibility
Requirements." That discussion
indicates that States' insurance statutes
and regulatory bodies have varying
ways of describing their jurisdiction
over guarantees, oftentimes dependent
on the precise circumstances
surrounding the transaction. Thus, the
Agency cannot state with any certainty
whether any particular guarantee would
subject the guarantor to a State's
insurance, laws. Therefore, the
responsibility rests on owners and
operators to obtain guarantees that are
valid and enforceable and on
prospective guarantors to ascertain and
comply with the State laws they would
subject themselves to if they were to
provide guarantees. As discussed in
Section IV.C of today's preamble, the
first responsibility cited is accomplished
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Federal Register / Vol. 53, No. 170 / Thursday, September 1. 1988 / Rules and Regulations 33943
by requiring a certification from the
Attorney General or Insurance
Commissioner of the State in which the
guarantor is incorporated and of each
State in which a facility covered by the
guarantee is located.
3. Validity of Non-Parent Guarantee
Providing Liability Coverage. Some
commenters questioned whether non-
parent guarantees would provide
assurance equivalent to that provided
by a parent guarantee. The Agency
concluded that adequate assurance will
be provided by these "intercorporate"
guarantees. Intercorporate guarantees
are a common means of assuring a
lender that its loan will be repaid. In
particular, "cross-stream" guarantees,
which are from a "brother" subsidiary to
a "sister" subsidiary where both firms
are owned by the same corporate
parent are a typical business practice.
Normally, collection of funds assured by
intercorporate guarantees is a
comparatively simple matter of contract
enforcement
In unusual circumstances, such as the
situation where the guarantor declares
bankruptcy, efforts could be made to
avoid the guaranteed obligation. Certain
provisions of the Federal bankruptcy
code (11 U.S.C.A. S44(b) and 548(a)(2))
allow avoidance of obligations that
deplete the debtor's assets to the
detriment of its creditors. If, while the
guarantor was involved in bankruptcy
proceedings, a liability claim was
presented to it for payment a question
could arise over whether bankruptcy
laws would enable it to avoid satisfying
the claim because the payment would
deplete its assets to the detriment of its
creditors. Under section 548(a)(2) of the
Federal bankruptcy code, a trustee in
bankruptcy may avoid payments made
to any party within a year before the '
debtor filed bankruptcy if (1) the debtor
was insolvent at that time and (2) the
debtor did not receive "reasonably
equivalent value" in return for the
transfer. Section 544(b) essentially
enables similar actions to be pursued
under applicable State laws.
Intercorporate guarantees, however,
should not be vulnerable to such actions
if the owner or operator receives
reasonably equivalent value in return
for the guarantee. In effect, this
reasonably equivalent value serves as
consideration supporting the guarantee
contract similar to the guarantor having
a "substantial business relationship"
with the owner or operator. According
to most authorities, there is no difficulty
hi finding reasonably equivalent value
hi downstream guarantees, where the
guarantor is higher in the corporate
hierarchy (e.g., a direct or higher-tier
parent) than the subsidiary receiving the
guarantee. The subsidiary relationship
of a firm to its direct or higher-tier
parent is almost always considered a
benefit to that parent. In-cross-stream
guarantees from one subsidiary of a
parent to another subsidiary of that
same parent, demonstrating reasonably
equivalent value is more difficult
because the subsidiary to which the
guarantee is given is not an asset of the
other subsidiary serving as the
guarantor. In order to obviate any
question about reasonably equivalent
value in cross-stream guarantees,
therefore, the Agency is requiring a
cross-stream guarantor to describe in ,
the Chief Financial Officer's Letter
(§ 264.151(g}} the value of the
consideration that accrued to it from the
guarantee.
The Agency has also concluded that
adequate assurance that obligations will
not be avoided in the event of
bankruptcy will be provided by
guarantees made by other related firms
(i.e., not corporate siblings or parents]
and unrelated firms which demonstrate
a substantial business relationship with
the owner or operator. As with
intercorporate guarantees, collection of
funds in most cases will merely be a
matter of contract enforcement In the
event of bankruptcy of the guarantor,
however, it is particularly important that
the guarantee be written so as to
demonstrate clearly that the guarantor
has received reasonably equivalent
value in consideration for the guarantee.
As discussed above, the Agency is
requiring these guarantors to describe in
the Chief Financial Officer's Letter
(§ 264.151(g)) both the nature of the
substantial business relationship and
the value derived from the guarantee.
D. Trust Fund
Today's rule authorizes owners or
operators of hazardous waste facilities
to use trust funds to demonstrate
financial responsibility for third-party
liability coverage (40 CFR 264.147(a](5),
264.147(b)(5), 265.147(a)(5), and
285.147(b){5)), if assets sufficient to
cover the full amount of the assurance to
be provided by the trust fund are placed
in the fund before it becomes effective
(i.e., the trust must be fully funded "up-
front") (40 CFR 264.147(j)(3) and
265.147(j)(3)). Several comments
received on the August 21,1985 NPRM
supported the use of trust funds to
demonstrate financial responsibility for
third-party liability coverage.
1. Features of Mechanism. A trust
fund is an arrangement in which a
separate legal entity, the trust, is created
to hold property or funds for the benefit .
of another. At least three parties are
necessary under trust agreements: the
grantor, who establishes and funds the
trust; the trustee, who has a fiduciary
responsibility over the property placed
in the trust by the grantor;, and the
beneficiary, the person (or group of
people) for whom the arrangement is
made. The most significant feature of a
trust fund is the shift of legal ownership
of the property in the trust from the
grantor to the trustee when the trust is
established and funded.
The trust document or trust agreement
determines the allocation of rights,
duties, and responsibilities among the
parties to any trust. The trustee, in
return for a fee, has a fiduciary
responsibility to manage the fund
according to the rules specified in the
agreement This agreement also defines
the limits of a trustee's liability. In
addition, a trust agreement states the
manner hi which payments are made
into and out of the trust, as well as the
grounds upon which the trust can be
terminated.
2. Validity of Trust Fund for Liability
Coverage. A trust used as a financial
assurance mechanism should have a
fund balance equal to the amount of
coverage being demonstrated. The trust
agreement may allow a pay-in period
during which fee grantor makes
payments of specified amounts into the
trust until the trust is fully funded. The
length of the pay-in period typically is
designed such that the trust fund
balance equals the required amount of
coverage before funds are needed for
the assured activity. Because liability
coverage may be needed immediately,
the trust in today's rule must be fully
paid up at the time it is relied upon for
financial assurance. The trust also may
not be cancelled unless and until an
alternate financial assurance
mechanism is in place. A fully funded
trust provides a high degree of
assurance because funds, up to the
required amount of coverage, are set
aside specifically for the purpose of
liability coverage.
To ensure that the full amount of
coverage is available each year in which
owner or operator must provide
financial assurance, the Agency is
requiring both that the trust fund be fully
funded immediately and, in addition, if a
liability claim is paid out of the trust
fund balance, the owner or operator is
required to refinance the trust annually
up to the amount of the required
coverage on or before the anniversary
date of the establishment of the fund to
satisfy the annual aggregate requirement
of §§ 264.147 and 265.147.
Although some owners and operators
may conclude that the cost of funding a
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33944 Federal Register / Vol. 53. No. 170 / Thursday. September 1, 1988 / Rules and Regulations
trust as the sole financial assurance
mechanism is prohibitive, they may find
it desirable to use a trust fund in
combination with one or more other
mechanisms. For example, owners and
operators who purchase insurance
policies that do not provide the full
amount of aggregate coverage might use
trust funds to demonstrate financial
responsibility for the amounts of the
aggregate not covered by the insurance
policy.
JS. Purchase of Insurance by Other Firms
Under the current liability
requirements, proof of adequate
Insurance coverage can be provided by
either a certificate of insurance or an
endorsement. A certificate of insurance
is a statement obtained from the insurer
certifying that it has issued insurance as
represented in the certificate. The
certificate is not a part of the policy,, but
can be used to demonstrate the
existence of the policy. An endorsement
is a form attached to the policy that
describes the original termii of the policy
, and any amendments to those terms. An
endorsement is a part of the policy and
also evidences that insurance has been
issued as described in the endorsement
The Agency is today mating minor
revisions to the insurance certificate and
endorsement to clarify that other firms
may purchase insurance on behalf of
owners or operators and to ensure that
EPA receives proper notice of actions
affecting the policy, such as: attempted
cancellation, where the polfcy has been
purchased by another firm. These
changes are reflected in paragraphs 2(d)
of the "Hazardous Waste Facility
Liability Endorsement" and of the
"Hazardous Waste Facility Certificate'
of Liability Insurance" in §i{ 284.151(i)
and.284.151G), respectively.
* Currently, 40 CFR 284.147(a>and
265,147(a) require that an owner or
operator must "have and maintain"
coverage for bodily injury and property
damage to third parties resulting from
operation of a hazardous waste
management facility. These regulations
do not state explicitly that a party other
than the owner or operator may
purchase or obtain the necessary
insurance coverage on behalf'of the
owner or operator. To clarify in the
regulations that such insurance may be
purchased by a third party, however,
requires only that the language of the
notice of cancellation provision in these
Insurance policies be amended.
To ensure that the cancellation
provision in the Endorsement and
Certificate covers a situation in which
another company has purchased a.
policy for the owner or operator, the
Agency has-modified the language of the
cancellation provision of both the
Certificate and Endorsement to state
explicitly that another firm providing
insurance for an owner or operator must
notify the Regional Administrator and
the owner or operator by certified mail
60 days before insurance is cancelled
(40 CFR 264.151(iK2)(d) and
264.151(j)(2)(d)). In addition, the revised
cancellation provision also states that
another firm providing insurance for an
owner or operator must notify EPA in
writing (1) whenever claims are made
against the firm or the owner or operator
for third-party damages and (2) before
any changes are made in the policy. The
Agency is concerned that reductions in
the level of coverage available to the
owner or operator, due to claims made
against the firm providing the insurance
or changes in the insurance policy by
the firm providing the insurance,
otherwise may not be reported to EPA.
F. Allowable Combinations of
Mechanisms
The Agency will allow an owner or
operator to demonstrate the required
liability coverage through the use of
combinations of financial assurance
mechanisms (40 CFR 264.147(a){6),'
284.147(b)(6). 265.147(a)(8). and
265.147(b}(6)). Owners or operators may
use.any combination of insurance, the
financial test, the corporate guarantee, -a
letter of credit, a surety bond, and a
trust fund. In allowing combinations of
instruments, EPA is extending the
general approach of Subtitle C liability
coverage requirements. An owner or
operator can use its own financial
strength to cover some costs and
another financial assurance mechanism
to cover the remainder, provided that in
combining the mechanism assets are not
double-counted. To prevent double-
counting, combinations of the corporate
guarantee and financial test are allowed
only if the financial statement of the
guarantor and the owner or operator are
not consolidated (40 CFR 284.147(a)(8),
284.147(b)(8), 265.147(a)(8), and
265.147(b)(6)). La a consolidated
financial statement, the assets and
liabilities of a subsidiary are included in
the parent company's financial
statement If the financial statements of
the guarantor were consolidated with
the statement of the owner or operator,
the owner or operator could count its
own assets once for the financial test
and they could be counted again in the
corporate financial statement which is
used to support the corporate guarantee.
Such double-counting of assets would
negate the value of the financial test by
overestimating the assets of the
guarantor.
Today's rule includes a provision
requiring owners and operators to
specify which of several combined
instruments should be drawn upon first
in the event of a claim by designating
instruments as "primary" or "excess"
coverage. Under closure and post-
closure care financial assurance rules,
priorities may be established by the
Regional Administrator either by
selecting one instrument and drawing
upon it, or by drawing upon all
instruments simultaneously and then
drawing funds from the standby trust
without regard to their source (see 40
CFR 284.143, 264.145, 285.143, and
265.145). The Agency considered giving
the Regional Administrator similar
authority in today's rule. However, the
Agency is seeking in this rule to
minimize the role of the Regional
Administrator in payment of claims.
Consequently, under today's rule the
Regional Administrator does not
establish the order in which financial
assurance mechanisms are drawn upon
in cases when owners or operators use
more than one mechanism to satisfy the
liability coverage requirements.
The Agency also considered the
option of establishing standardized
priorities for drawing upon mechanisms.
This option was not adopted, however,
because the Agency believes that
priorities can better be established on a
case-by-case basis.
While rejecting these two approaches,
EPA believes that establishing priorities
is necessary to avoid delays in the
payment of claims and to define clearly
the extent of coverage. For example,
priority arrangements are often
specified when insurance is combined
with another mechanism. Insurers
typically include language within
policies limiting their obligations in the
event that other coverage exists and
preventing the "stacking" of policies
except in the case of designated
"primary" and "excess" coverage. Such
language generally specifies that the
coverage provided is "primary"
(meaning that it is to be drawn upon
first) and that if other coverage exists,
payment of claims will be shared, or
that payment will be made after the
other coverage is exhausted up to the
liability limits of the policy.
Today's rule requires an owner or
operator to specify which of several
mechanisms that are being used in
combination to satisfy the coverage
requirements should be drawn upon first
in the event of a claim. The actual
determination of priority is, however,
left with the owner or operator and may
involve negotiation with the providers of
the assurance mechanism.
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To facilitate the establishment of
priorities, the financial assurance
instruments adopted in today's rule
include language specifying whether the
coverage is primary or excess. In
addition, the guarantee under
§ 264.151(h)(2) has been amended to
indicate whether it provides primary or
excess coverage.
IV. Special Provisions of Additional'
Mechanisms
This section discusses several special
provisions that are common to several
of the additional mechanisms for
liability coverage authorized by today's
rule, and that differ from requirements
for closure and post-closure financial
assurance.
A, Beneficiaries
In contrast to the mechanisms
authorized or proposed under Subtitle C
for closure and post-closure care and
corrective action, the. liability coverage
mechanisms authorized today do not
name EPA as their beneficiary. In
today's rule, the issuer of the mechanism
assumes the obligation to satisfy third-
party liability claims for personal injury
or property damage arising from
operation of the facilities covered by the
mechanism if the owner or operator
does not do so.
Third parties, and not EPA, are
designated beneficiaries to ensure that
the third parties are paid directly for
liability claims without involvement by
EPA. The issuer of the mechanism must
honor all valid certified claims or
judgments upon the mechanism up to
the limit of the amount covered.
B. Payment Trigger
' To ensure that only valid claims are
paid, the mechanisms specify that
before making payment the issuer must
receive either (a) a certificate of valid
claim signed by the third-party
claimants and by the owner or operator,
or (b) a final court judgment This
provision allows for the resolution of
third-parry claims without the
involvement in the dispute of either the
issuer of the mechanism or EPA. Each of
the mechanisms authorized today
contains a provision that incorporates
the payment trigger requirements,
including the "certificate of valid claim"
(40 CFR 264.151(h)(2), section 13;
264.151(k), clause 2; 264.151(1). condition
(4); and 264.151(m), section (4)).
The purpose of this payment trigger is
to avoid placing either the provider of
the mechanism or the Regional
Administrator in the position of deciding
the merits of disputes between the
owner or operator and the third-party
claimant The payment trigger is also set
up so that claims do not have to be
litigated for a final judgment. The
certification is designed to allow an
owner or operator to settle a claim with
a third party without conceding liability
in a document accessible by the public,
which could be used against the owner
or operator in future claims.
The requirement to submit the signed
and notarized certification assures that
the parties have either agreed that the
claim is valid and in the correct amount
or they have settled any disputes related
to the validity or amount of the claim
before coming to the provide? for
payment The procedure is designed to
reduce administrative burdens and to
allow efficient payment of valid claims.
The Agency does not expect the
requirement to submit a signed and
notarized certification of claim to place
undue burdens on owners or operators
or third-party claimants.
Alternatively, if the owner or operator
and the third-party claimant cannot
agree on the validity and amount of the
claim, a final judgment by a court must
be submitted by the third-party
claimant indicating that the claim
should be paid. Whether payment of a
judgment shall be made is a matter of
applicable State law and shall be
determined by the laws of the
jurisdiction hi which the action was
brought
Unlike the requirements for closure
and post-closure care and corrective
action, EPA is not requiring the
establishment of a standby trust for
mechanisms issued for liability
coverage. A standby trust is necessary
when funds are payable .to EPA,
because by law monies paid to the
Federal government must be deposited
La the United States Treasury. Because
the mechanisms will pay third parties
directly, a standby trust is not necessary
for liability coverage.
C. Certification of Validity and
Enforceability
The surety bond and guarantee
authorized in today's rule may be
subject to the insurance laws and
regulations ofcertain States. To ensure
that these instruments are valid and
enforceable. EPA has contacted several
State insurance commissions to ask how
they would view these mechanisms for
liability coverage. The results of those
contacts are described in the docket for
this rulemaking.
Most of the State commissions
contacted said they would probably
require a firm providing a surety bond to
qualify as an insurer under State
insurance laws unless the firm was
related to the owner or operator in a
corporate structure or it was providing
the bond incident to its business
relationship with the owner or operator.
Two factors may influence the State's
determination: whether a premium is
charged and whether the firm would
make such bonds available to the
general public. To be certain that any
bonds used as financial assurance
mechanisms will be valid and
enforceable, the Agency will not
approve a surety bond for liability
coverage unless the Attorneys General
or Insurance Commissioners of the State
in which the surety is incorporated, and
of each State in which a facility covered
by the bond is located, submits a written
statement that a surety bond written
and executed as required is a legally
valid and enforceable obligation (40
CFR 264.147(i}(4) and 265.147(i)(4)). The
certification by each State is required
only once, and need not be obtained on
a case-by-case basis by the owner or
operator: instead it is provided to EPA
or to a State agency. Accepting
certifications provided to a State agency
may be necessary in some
circumstances even'if EPA is
administering the financial assurance
requirements, because hi many States
officials such as the Attorney General
will not issue opinions except to State
agencies.
Guarantees for liability coverage also
may come within the jurisdiction of a
State's insurance laws and regulations.
Accordingly. EPA is requiring that the
guarantee may be used to fulfill liability
coverage requirements only if the
Attorney General or Insurance
Commissioner of the State in which the
guarantor is incorporated, and of each
State in which a facility covered by the
guarantee is located, submits a written
statement that a guarantee written and
executed as required is a legally valid
and enforceable obligation (40 CFR
264.147(g)(2) and 265.147(g){2)). The
corporate guarantee rule provides a
parallel requirement for this guarantee.
To date, EPA has received evidence
from 28 States that the parent guarantee
would be acceptable.
D. Cancellation
Today's rule includes cancellation
procedures for the authorized
mechanisms. These procedures vary
somewhat depending on the instrument.
For the surety bond and guarantee
provided by an unrelated firm,
cancellation is allowed 120 days
following notification by certified mail
to the owner or operator and to the
Regional Administrator(s) of the
Region(s) in which the affected facilities
are located (40 CFR 264.151(h)(2) and
264.151(1)). The Agency believes that
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33946
120 days is sufficient time for an owner
or operator to locate a new financial
assurance mechanism, and that any
more stringent requirement, such as one
requiring an in-place alternative prior to
cancellation, would limit the availability
of these mechanisms and would require
extensive involvement of the Agency in
the claims process.
The cancellation provisions for
guarantees provided by some guarantors
related to the owner or operator (i.e.,
corporate parents, siblings, or grand
parents) require the guarantor to
continue to provide the guarantee until
an alternate mechanism is in place (40
CFR 264.151(h)(2)). This more stringent
requirement is currently required for the
corporate parent guarantee and is today
being extended to guarantees provided
by some of the other firms that are
related'to the owner or operator.
The distinctions in the cancellation
provisions are based on the nature of
the relationship between the provider of
assurance and the owner or operator.
EPA believes that a corporate parent or
some of the other related corporations,
due to their close relationship with the
owner or operator, will have a
continuing interest in the financial
condition of the owner or operator and
therefore should bear more
responsibility for continued financial
assurance than a less related or
completely unrelated firm. When
guarantees are provided by guarantors
closely related to the owner or operator,
permitting cancellation only when an
alternative has been approved ensures
that coverage for liability costs will.be
continuously available. Similarly,
because thepwner or operator.provides
a trust fund directly, it is not allowed to
cancel that mechanism until another
form of financial assurance has become
effective. EPA is not promulgating a
similarly stringent cancellation
requirement for providers, of insurance,
surety bonds, or guarantees by less
related and unrelated firms, because it
'- believes that third-party providers
would not provide coverage if they were
unable to cancel that coverage, with
reasonable notice, at some later date.
Today's rule does not amend the
current provisions (40 CFR 264.151 (i)
and (j)} allowing an insurer to cancel an
insurance policy 60 days after the notice
of cancellation is received by the
Regional Administrator. Insurance
providers argued that nol allowing
cancellation until at least 120 days after
notice is given exposes them to
considerable risk when the insured fails
to pay-the premium for the final period
of coverage. In consideration of this
concern, the Agency is maintaining the
current 60-day requirement for
insurance policies.
E. Exclusions
The mechanisms in today's rule
contain a provision that they do not
apply to certain categories of damages
or obligations (see 40 CFR 264.151(h)(2),
paragraph (4); 264.151(k); 264.151(1).
conditions clause (1); and 264.151(m),
section 3). These exclusions are
patterned on existing standard
exclusions found in insurance coverage
(see, for example, the Insurance
Services Office pollution liability
coverage form CG 00 391185). They are
intended to ensure that the coverage is
not exhausted by the payment of claims
that are covered by other compensation
systems or that are otherwise not
intended to be included within the scope
of coverage.
The Agency did not adopt all the
standard Commercial General Liability
(CGL) and Environmental Impairment
Liability (EIL) exclusions, but included
only those exclusions it considered
relevant to the financial assurance
mechanisms for liability. EPA has also
recently issued guidance on the
acceptability of site-specific pollution
exclusion within insurance policies. This
guidance memorandum is applicable
only to insurance policies.
' Exclusion (a), for bodily injury or
property damage for which the owner or
operator is obligated to pay damages by
reason of the assumption of liability in a
contract or agreement, is intended to
exclude liabilities assumed by contract
that do not involve the hazardous waste
treatment, storage, and disposal facility
or facilities of the owner or operator. It
does not exclude settlements or other
agreements to pay damages in .
connection with accidental occurrences.
resulting in bodily injury or property
damage caused by hazardous waste.
Exclusion (b), for .obligations under
workers' compensation, disability
benefits, or unemployment
compensation law or similar law, is
intended to ensure that liability
coverage is available for non-employee
third parties and does not duplicate
coverage provided under these other
programs or forms of assurance.
Exclusion (c), for bodily injury to the
employees, or the immediate family of
employees, of the owner or operator, is
also intended to ensure that coverage is
available for "third parties" and does
not duplicate coverage provided under
other forms of assurance.
Exclusion (d), for bodily injury or
property damage arising out of the
ownership or use of any aircraft, motor
vehicle, or watercraft, is to prevent use
of an authorized financial assurance
mechanism for routine accidents that
are not directly related to management
of hazardous waste.
Exclusion (e), for property damage to
property owned, occupied, rented, or in
the care, custody, or control of the
owner or operator, is intended to ensure
that coverage will be available to
compensate third parties, and not the
owner or operator, for property damage
as a result of activities at TSDFs.
V. Other Issues Presented in the Notice
of Proposed Rulemaking
In the August 21,1985, NPRM, EPA
suggested several additional approaches
that could be taken to promote
compliance with the financial
responsibility requirements.
Alternatives, other than authorizing
additional financial assurance
mechanisms, included the suspension or
withdrawal of the liability coverage
requirements, clarification of the scope
of coverage, revision of the required
levels of coverage, or authorization of
waivers. Numerous comments were
received on these alternatives. After
considering these comments, the Agency
has decided to retain the liability
coverage requirements at their present
levels, to maintain the present scope of
coverage, and to reject the option of
generic waivers. This section discusses
briefly the comments received on these
alternatives in response to the NPRM
and explains the reasons why EPA is
not adopting them. A more complete
discussion of these comments is
included within the docket
accompanying today's rule.
A. Maintain, Suspend, or Withdraw
Existing Liability Coverage
Requirements
The Agency received comments from
State governments and the public that
generally argued in favor of maintaining
the requirements. Supporters of the
existing requirements argued that the
insurance market for EIL coverage
would not recover without such
requirements; that maintaining the
requirement would increase public
confidence in hazardous waste facilities
and decrease opposition to siting and
permitting such facilities; and that low-
risk owners and operators were able to
obtain coverage. Commenters from State
and local governments in particular
argued that suspension or withdrawal of
the liability coverage requirements.
would severely damage the chances for
an eventual solution to the problem of
insurance availability, that suspension
would not be acceptable to the public
and would undermine the strength of
programs to regulate hazardous waste
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Federal Register / Vol. 53, No. 170 / Thursday, September 1; 1988 / Rules and Regulations 33947
management, and that liability coverage
is necessary to protect human health
and environment. Facilities that are
unable to obtain such coverage, in these
commenters' opinion should not
continue in operation.
In contrast, a number of firms in the
regulated community argued that EPA
should not maintain the existing liability
coverage requirements, but rather
should suspend or withdraw the
requirements, because of the difficulty
many firms faced in obtaining insurance.
Commenters also argued that the
liability coverage requirements could be
suspended or withdrawn because they
were redundant with permitting
conditions and that EPA should
concentrate on achieving risk control
rather than post-loss compensation.
They also pointed out that even if the
liability coverage requirements were
abolished, third parties harmed by
hazardous waste management activities
could still sue the owner or operator for
damages. Finally, commenters argued
that the constraints on insurance
availability made a short-term
suspension necessary, even if the
requirements for liability coverage were
later reinstituted.
After considering these comments and
suggestions made in response to other.
questions in the NPRM, EPA has
concluded that the current liability
coverage requirements 'should be
maintained. The Agency believes that
the requirements are an important
component of the RCRA management
system and are necessary to protect
human health and the environment.
Further, Congress in the Hazardous and
Solid Waste Amendments of 1984
(HSWA) has stressed the importance of
satisfying all financial assurance
requirements, including liability
coverage. Finally, by authorizing the use
of additional financial mechanisms for
liability coverage, the Agency believes
that the problems of insurance
availability cited by some commenters
as reasons to suspend or withdraw the
rule should become less important in the
future.
B. Revise Scope and Levels of Coverage
A number of issues were considered
by EPA in connection with the scope
and levels of coverage. They included
coverage levels, distinction between
sudden and nonsudden coverage,
exclusion of legal defense costs, and
deductibles. Each is discussed in this
section.
1. Coverage Levels. EPA established
the sudden accidental and nonsudden
accidental liability coverage
requirements in 1982 at $1 million per
occurrence and $3 million per
occurrence, respectively, on the basis of
the Agency's investigation of existing
third-party damage cases. To account
for the possibility that the same firm
might experience more than one claim in
. a year, the Agency also established
annual aggregate coverage requirements
at twice those amounts, or $2 million
and $6 million, respectively.
In July 1986, EPA again reviewed
third-party damage claims, awards, and
settlements for sudden and nonsudden
accidental occurrences involving
hazardous chemicals as well as
hazardous waste to determine whether
the required levels of coverage are
adequate. Data were limited, however,
for several reasons, including the fact
that few cases have been litigated to
completion. Thus, available data were
generally data on amounts claimed,
rather than amounts recovered in
awards or settlements. Because final
awards and settlements often differ
significantly from initial claims, it is
difficult to draw conclusions based on
this data. In addition, commenters did
not supply any additional information
indicating that the currently required
coverage levels should be changed. The
Agency concluded, in light of the limited
data, that it had insufficient basis to
change the requirements at this time.
2. Distinction Between Sudden and
Nonsudden Coverage. 40 CFR 264.147(a)
and 265.147(a) requite all owners or
operators of hazardous waste facilities
to have "sudden accidental" coverage.
Owners and operators of surface
impoundments, landfills, or land
treatment facilities used to manage
hazardous wastes also are required to
have "nonsudden accidental" coverage
(40 CFR 264.147(b) and 265.147(b)).
A number of commenters on the
August 21,1985, NPRM suggested that
the Agency no longer distinguish
between sudden and nonsudden
accidental coverage. They argued that
nonsudden coverage was difficult to
obtain, and that insurers were beginning
to issue combined policies for sudden
and nonsudden coverage. (A more
complete discussion of comments on
this point is provided in documents
accompanying today's rulemaking.)
EPA has decided to maintain the
distinction between sudden and
nonsudden coverage.' The Agency
believes that maintaining distinct
coverage requirements is still
appropriate. Further, the insurance
industry continues to write policies that
distinguish between sudden and
nonsudden events. EPA recognizes,
however, that in some cases, courts
have interpreted coverage for sudden
events broadly to include damage from
a gradual release occurring over long
periods of time. As a result, some
insurers do not distinguish between
sudden and nonsudden events, but offer
"combined coverage": coverage for both
sudden and nonsudden events on the
same policy with single aggregate and
per-occurrence limits. Today's rule
includes a change to the coverage
requirements citation specifying that the
Agency will accept "combined
coverage" policies, but to provide
equivalent levels of coverage, the limits
must be at least $4 million per-
occurrence ($1 million sudden plus $3
million nonsudden) and $8 million
annual aggregate ($2 million sudden plus
$6 million ncnsudden).
* 3. Exclusion of Legal Defense Costs
from Policy Limits. Currently, Subpart H
requires an owner or operator of a TSDF
to maintain liability coverage for sudden
and nonsudden accidental occurrences
at specified levels, exclusive of legal
defense costs (40 CFR 284.147 (a) and (b)
and 265.147 (a) and (b}). The Agency
decided to exclude legal defense costs
for two reasons: (1) The insurance
industry standard for CGL policies
excluded legal defense costs from, the
coverage, and (2) legal defense costs
could absorb a major portion of the
required coverage, leaving an
inadequate amount to cover actual
damages. The Agency continues to
believe that these reasons remain valid
and do not affect the availability of
insurance.
In its August 21,1985 NPRM the
Agency requested comment on whether,
in an effort to increase the availability
of EEL coverage for TSDFs, legal defense
costs should be included in coverage
limits. A number of commenters
supported including legal defense costs.
They argued that the EIL coverage
currently available to TSDFs is written
to include defense costs within policy
limits. The Agency .contacted insurance
companies known to provide EIL
coverage to ask whether their EIL
policies included or excluded legal
defense costs. Although some
companies stated that defense costs are
included in the coverage limits, others
said that defense costs were excluded,
or that the policy could be written to
conform to the RCRA requirements; that
is, policies could be written to exclude
legal defense costs. Furthermore, current
industry practice, including the present
industry standard form for this type of
insurance, still excludes defense costs
from the coverage limits. In addition,
while recently there have been attempts
by insurers to limit defense cost
exposure by including at least some
defense costs within policy limits, the
trend appears to be toward some other
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33948__Federal Register / Vol. 53. No. 170 / Thursday. September 1. 1988 / Rules and Regulation
« ^^^^^^^^^"^^^^^^^^^""""^'^^^^'^^^^^^^^^^^^n^MMM
method of limiting costs outside of
policy limits.
The second reason commenters
presented for changing the RCRA
requirements to include legal defense
costs was that the assurance of the
availability of defense costs is an
important element of claims litigation
and further that there were insufficient
RCRA claims data to warrant requiring
coverage excluding legal defense costs.
The Agency continues to believe that
it is important for the full amount of
liability coverage to be available to
cover claims against owners or
operators of TSDFs. The Agency
decided on the current coverage levels
after a thorough investigation of
reported third-party damage cases from
hazardous waste accidents and these
levels do not account for legal defense
costs. Because the size of legal defense
costs in this area is somewhat uncertain,
the most secure method of ensuring that
sufficient funds will be available to
cover actual damages is to retain the
requirement that defense costs be
excluded.
Other commenters stated that
including legal defense costs should be
permissible, as long as the full amount
of RCRA liability coverage wan
available to claimants. EPA agi-ees. If
the total coverage includes the full
amount required for third-party, liability
plus additional cpverage earmarked for
legal defense costs, the policy would be
acceptable under current regulations.
Thus, for example, a policy would
provide acceptable assurance for a
surface impoundment if the total
coverage was S5 million per occurrence
and S10 million annual aggregate if legal
defense costs covered under the policy
were limited to a maximum of $1 million
per occurrence and $2 million annual
aggregate. A S5 million per occurrence,
S3 million annual aggregate policy
without an earmarked limit on legal
defense costs would not provide
adequate assurance.
4. Deductibles, A number of
commenters argued that EPA should not
require "first-dollar" coverage for
liability costs. If deductibles were
allowed, according to these commenters,
insurance coverage might be easier to
obtain or be less costly.
Although the insurer must provide
first-dollar coverage. EPA notes that the
regulations do not prevent insurers from
requiring reimbursement from owners or
operators for first-dollar expenditures.
The owner or operator can agree in the
insurance contract that the insurer will
be reimbursed for these expenditures.
The regulations do not, however, allow
self-insurance retention. Policiea cannot
require the owner or operator to cover
first-dollar expenditures. Such self-
( insurance is available to an owner or
' operator under the regulations only if it
can pass the requirements established in
the financial test for liability coverage.
EPA contacted a number of insurers to
determine whether self-insurance
retention could help to alleviate
problems of insurance availability and
affordability. In general, however, their
responses indicated that current
problems with EIL insurance are related
to other factors, such as difficulty in
predicting the size of the risk being
covered, and that deductibles would not
significantly enhance insurance
availability. Therefore, the Agency is
retaining the current first-dollar
coverage requirement.
C. Mechanisms Considered But Not .
Adopted
1. Security interests. Security interests
are a special procedure, authorized
under State law following a pattern
established by the Uniform Commercial
Code, for creating collateral to serve as
a support for the repayment of loans or
other financial obligations. Security
interests were considered but rejected
for liability coverage because of the
complicated legal requirements that
have to be satisfied to ensure that they
provide effective financial assurance.
For example, security interests
ordinarily must be perfected by filing
papers with appropriate agencies in
each jurisdiction where collateral exists,
and these filings must be kept up to
date. EPA would be required to verify
that proper filings had occurred. In
addition, the Agency would also have to
determine that the collateral underlying
the agreement had been valued
properly. If not, the proceeds from sale
of the cojlateraj might fail to supply the
amounts required to satisfy valid claims.
Finally, the need to satisfy specific legal
processes prior to liquidation of
collateral could delay payment of valid
third-party claims. Because of these
problems, EPA has decided not to adopt
security interests at this time.
2. Indemnity contracts. Indemnity
contracts are legally binding
commitments by a third party or
"indemnitor" to pay a debt or obligation
of another party. The duty of the
indemnitor generally is to repay the
primary debtor after it has satisfied the
debt or obligation. The Agency was not
willing to adopt such a mechanism
because of the administrative difficulties
and lengthy time needed to enforce such
contracts.
An indemnity contract also may be
established in which the indemnitor
agrees to assume the obligation even if
the primary debtor does not pay. Such a
contract, however, so closely resembles
a guarantee that EPA determined that in
effect no additional financial assurance
option would be added to the
regulations by inclusion of the
indemnity. Therefore the Agency has not
added an indemnity contract to the set
of options authorized in today's rule.
3. Reserve funds. As a temporary
measure pending the growth of the
insurance market, some commenters
suggested that owners or operators set
aside the equivalent of insurance
premiums in a reserve fund. Such a
mechanism could function in a manner
similar to trusts, if control over the fund
were given to an independent fiduciary
agent Alternatively, however, some
commenters suggested that the reserve
fund be only a separate bookkeeping
entity under the control of the owner or
operator. EPA believes that neither
approach would ensure that the reserve
would contain sufficient funds when
required to satisfy claims. Liability
coverage funds may be needed at any
time after implementation of the
mechanism. Because a reserve fund
based on the estimated equivalent of
insurance premiums, rather than the
amounts equal to the required coverage
levels, would accumulate slowly, it
would be unlikely to contain adequate
funds to satisfy liability claims,
especially in the early years.'
In addition, EPA is convinced that a
reserve fund that is not under the
control of an independent trustee but
instead remains under the control of the
TSDF owner or operator will not provide
satisfactory financial assurance. No
independent third party would
administer the reserve fund, including
assessing its value and controlling
payments from the fund. The Agency
determined, therefore, not to authorize
the use of reserves. Today's rule
authorizes a fully funded trust fund, for
owners and operators who want to use a
similar mechanism.
4. Federal Insurance or Loan
Guarantees. Some commenters pointed
to other financial assurance programs
utilizing Federal insurance or loan
guarantees as possible models for EPA.
Establishment of insurance or loan
guarantees requires specific statutory
authority that has not been granted to
the Agency. Further, EPA does not
believe that as an agency whose
primary mandate is protection of human
health and the environment, it currently
possesses the expertise or resources to
administer either an insurance or a loan
guarantee program. Such programs or
approaches would require the Agency to
assess financial characteristics of
owners or operators, and to make
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Federal Register / Vol. 53. No. 170 / Thursday, September 1. 1988 / Rules and Regulations 33949
decisions concerning the validity of
claims, when those assessments and
decisions can be made more accurately
and efficiently by existing-institutions
that provide financial assurance.
5. Captive Insurance Pools and Risk
Retention Groups. EPA believes it is
unnecessary in today's rulemaking
explicitly to authorize the use of captive
insurance pools and risk retention
groups. Such instruments are already
authorized as forms of insurance. If the
policies offered by a pool or risk
retention group satisfy EPA
requirements, such policies provide
acceptable financial assurance.
D. Authorize Waivers
A number of commenters, particularly
those from industry, supported granting
temporary waivers on a case-by-case
basis if a firm can demonstrate that it
has made a "good faith effort" to obtain
the required liability insurance.
However, the Agency believes that the
authorization of additional mechanisms,
existing enforcement policies, the
somewhat improved insurance market
for TSDFs and the increased potential of
insurance offered by risk retention
groups, provide a better solution than
simply waiving the liability coverage
requirements. Also, existing regulations
enable Regional Administrators to grant
variances (§§ 264.147(c) and 265.147(c))
or adjustments (§ 264.147(d) and
265.147(d)) to the required liability
coverage amounts, if this is justified by
the degree and duration of risk
associated with a TSDF. The Agency
believes that justifiable modifications hi
the amount of coverage needed are more
consistent with the objectives of the
/ liability coverage requirements than
/ would be relieving owners or operators
of these requirements entirely, solely
because they made a "good faith" effort
to obtain coverage.
VI. Consistency With Other Existing and
Proposed Financial Assurance-
Requirements
EPA currently allows owners or
operators of hazardous waste TSDFs to
use the mechanisms being approved in
today's rule, including trust funds,
letters of credit, surety bonds, and
corporate guarantee contracts, to
provide financial assurance for the costs
of closure and post-closure care (40 CFR
264.143, 264.145, 264.151, 265.143. and
265.145), and has proposed their use for
corrective action (51FR 37854, October
24,1986). As described above, certain
features of the assurance mechanisms
are different because of the differences
between these programs and liability
coverage.
In addition, EPA has proposed
financial assurance rules applicable to
owners and operators of underground
storage tanks (USTs) containing
petroleum Under sections 9003 (c) and
(d) of RCRA as amended by HSWA
(RCRA Subtitle I), and by the Superfund
Amendments and Reauthorization Act
of 1986 (SARA) (52 FR 12662, April 17,
1987). The proposed rule would
establish requirements for
demonstrating financial responsibility
for taking corrective action and
compensating third parties for bodily
injury and property damage caused by
sudden and nonsudden accidental
releases arising from operating an
underground storage tank containing
petroleum. As in today's rule, under the
UST proposal, owners and operators of
underground storage tanks containing
petroleum would be allowed to use
letters of credit, surety bonds, and
expanded guarantees to demonstrate
financal responsibility for the costs of
corrective action and third-party
liability claims (52 FR 12786,12844, April
17,1987).
VII. Technical Correction to 40 CFR
264.151(b)
The May 2,1986 rule amending the
closure, post-closure care, and financial
assurance regulations mistakenly
omitted a portion of the required
language for the financial guarantee
bond found in 40 CFR 264.151(b) (see 51
FR 16422,16450). Today's rule makes a
technical correction to the regulation to
restore the required wording of the
bond.
VIII. Effective Date
This regulation is being published as a
final rule, effective in 30 days.
Section 3010(b) of RCRA provides that
EPA's hazardous waste regulations and
revisions thereto generally take effect
six months after their promulgations.
The purpose of this requirement is to
allow sufficient time for the regulated
community to comply with major new
regulatory requirements. The statute
allows for a shorter period prior to the
effective date, if (i) the Administrator
finds that the regulated community does
not need six months to come into
compliance; (ii) the regulation responds
to an emergency situation, or (iii) other
good cause. The Agency believes that
since the regulation does not add any
compliance requirements, but rather
expands the number of mechanisms
owners or operators may use to come
into compliance, a six-month period
prior to the effective date is
unnecessary.
Today's amendment adopts additional
mechanisms for complying with third-
part liability coverage requirements and
thus makes it easier for some owners
and operators to act in accordance with
the RCRA liability coverage regulations.
An effective date six months after
promulgation for the amendment
promulgated today would substantially
delay the implementation of the
regulations and would be contrary to the
interest of the regulated community and
the public. Accordingly, the Agency
believes that it makes little sense to
delay needed relief to owners or
operators by an additional five months.
IX. State Authority
A. Applicability of Rules in Authorized
States
Under section 3006 of RCRA, EPA
may authorize qualified States to
administer and enforce the RCRA
program within the State. (See 40 CFR
Part 271 for the standards and
requirements for authorization.)
Following authorization, EPA retains
. enforcement authority under RCRA
sections 3008, 7003, and 3013, although
authorized States have primary
enforcement responsibility.
Prior to HSWA, a State with final
authorization administered its
hazardous waste program entirely in
lieu of EPA administering the Federal
program hi that State. The Federal
requirements no longer applied in the
authorized State, and EPA could not
issue permits for any facilities in a State
where the State was authorized to
permit. When new, more stringent
Federal requirements were promulgated
or enacted, the State was obligated to
enact equivalent authority within
specified time frames. New Federal
requirements did not take effect in an
authorized State until the State adopted
the requirements as State law.
In contrast, under section 3006(g) of
RCRA, 42 U.S.C. 6926(g), new
requirements and prohibitions imposed
by the HSWA take effect in authorized
States at the same time that they take
effect hi non-authorized States. EPA is
directed to carry out those requirements
and prohibitions hi authorized States,
including the issuance of permits, until
the State is granted authorization to do
so. While States must still adopt
HSWA-related provisions as State law
to retain final authorization, the-HSWA
requirements and prohibitions apply in
authorized States in the interim.
B. Effect of Rule on State Authorizations
Today's rule promulgates standards
that will not be effective in authorized
States since the'requirements are not
being imposed pursuant to HSWA.
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Federal Register / Vol. 53. No. 170 / Thursday. September 1. 1988 / Rules and Regulations
Thus, the requirements will be
applicable only in those States that do
not have interim or final authorization.
In authorized States, the requirements
will not be applicable until the State
revises its program to adopt equivalent
requirements under State law.
In general, 40 CFR 271.21(e)(2)
requires that States that have final
authorization to modify their programs
to reflect Federal program changes and
subsequently submit the modifications
to EPA for approval. It should be noted,
however, that authorized States are only
required to modify their programs when
EPA promulgates Federal standards that
are more stringent or broader in scope
than the existing Federal standards.
Section 3009 of RCRA allows States to
impose standards more stringent than
those to the Federal program. For those
Federal program changes that are less
stringent or reduce the ncope of the
Federal program, States are not required
to modify their programs (see 40 CFR
271.1(i))t The standards promulgated
today, are less stringent than or reduce ,
the scope of the existing Federal
requirements. Therefore, authorized
States will not be requited to modify
their programs to adopt requirements
equivalent or substantially equivalent to
the provisions listed above. If the State
does modify its program, EPA must
approve the modification for the State
requirements to become Subtitle C
RCRA requirements. States should
follow the deadlines of 40 CFR
271.21(e](2) if they desire to adopt this
less stringent requirement
^Executive Order 12291
Under Executive Order 12291 (section
3{b)j the Agency must judge whether a
regulation is major and thus subject to
the requirement of a Regulatory Impact
Analysis. The notice published today is
not major because the rule will not
* result in an effect oh the economy of
$100 million or more, will not result in
increased costs or prices, will not have
significant adverse effects on
competition, employment, investment,
productivity, and innovation, and will
not significantly disrupt domestic or
export markets. Therefore, the Agency
has not prepared a Regulatory Impact
Analysis under the Executive Order.
This regulation was submitted to the
Office of Management and Budget
(OMB) for review as required by
Exective Order No. 12291.
XL Regulatory Flexibility Act
Under the Regulatory Flexibility Act
of 1980 (5 U.S.C. 601 et seq.}. Federal
agencies must, hi developing
regulations, analyze their impact on
small entities (small businesses, small
government jurisdictions, and small
organizations). This rule relaxes the
existing financial assurance
requirements and thus reduces costs
associated with compliance.
Accordingly, I certify that this regulation
will not have a significant economic
impact on a substantial number of small
entities.
XII. Supporting Documents
Supporting documents available for
this interim final rule include comments
on the August 21,1985 Proposed Rule.
summary of the comments on the July
11,1986 Interim Final Rule, and
background documents on the finanical
test for liability coverage. In addition,
background documents prepared for
previous financial assurance
regulations, as well as documents
prepared for this rulemaking, are also
available as are letters received from
State Attorneys General concerning the
corporate guarantee for liability.
All of these supporting materials are
available for review in the EPA public
docket (RCRA docket #F-88-CGFl-
VVVVV], Room S-212. Waterside Mall,
401M Street, SW., Washington, DC
20460.
List of Subjects.
40 CFR Part 264
Hazardous waste. Insurance,
Packaging and containers, Reporting and
recordkeeping requirements, Surety
bonds.
40 CFR Part 265
Hazardous waste, Insurance,.
Packaging and containers, Reporting
and recordkeeping requirements. Surety
bonds.
Date: August 19,1988.
Lee M. Thomas,
Administrator.
For the reasons set out in the
. preamble, Title 40, Chapter I of the Code
of Federal Regulations is amended as
set forth below.
40 CFR Part 264 is amended as
follows:
PART 264STANDARDS FOR
OWNERS AND OPERATORS OF
HAZARDOUS WASTE TREATMENT,
STORAGE, AND DISPOSAL
FACILITIES: LIABILITY COVERAGE
1. The authority citation for Part 264
continues to read as follows:
Authority: 42 U.S.C. 6905, 6912(a). 6924, and
6925.
2. In § 264.141, new paragraph (h) is
added to read as follows:
§ 264.141 Definitions of terms as used In
thissubpart
*****
(h) "Substantial business
relationship" means the extent of a ^
business relationship necessary under
applicable State law to make a
guarantee contract issued incident to
that relationship valid and enforceable. -
A "substantial business relationship"
must arise from a pattern of recent or
ongoing business transactions, in
addition to the guarantee itself, such
that a currently existing business
relationship between the guarantor and
the owner or operator is demonstrated
to the satisfaction of the applicable EPA
Regional Administrator.
3. In § 264.147, paragraph (h) is
redesignated as paragraph (k);
paragraphs (a) introductory text, (a)(2),
(a)(3), (b) introductory text, (b)(2), (b)(3),
(b)(4), (g) heading and (g)(l) introductory
text are revised, and by removing and
reserving paragraph (g)(lKii):
paragraphs (g)(2)(i) and (g)(2)(ii) are
amended by removing "corporate;" and
new paragraphs (a)(4), (a)(5), (a)(6),
(a)(7), (b)(5), (b)(6), (b)(7), (h), (i), and (j)
are added, to read as follows:
§264.147 Liability requirements.
(a) Coverage for. sudden accidental
occurrences. An owner or operator of a
hazardous waste treatment, storage, or
disposal facility, or a group of such
facilities, must demonstrate financial
responsibility for bodily injury and
property damage to third parties caused
by sudden accidental occurrences
arising from operations of the facility or
group of facilities. The owner or
operator must have and maintain
liability coverage for sudden accidental
occurrences in the amount of at least SI
million per occurrence with an annual
aggregate of at least $2 million,
exclusive of legal defense costs. This
liability coverage may be demonstrated
as specified in paragraphs (a) (1), (2), (3),
(4), (5), or (6) of this section:
*****
(2) An owner or operator may meet
the requirements of this section by
passing a financial test or using the
guarantee for liability coverage as
specified in paragraph (g) of this section.
(3) An owner or operator may meet
the requirements of this section by
obtaining a letter of credit for liability
coverage as specified in paragraph (h) of
this section.
(4) An owner or operator may meet
the requirements of this section by
obtaining a surety bond for liability
coverage as specified in paragraph (i) of
this section.
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Federal Register / Vol. 53. No. 170 / Thursday, September 1. 1988 / Rules and Regulations . 339S1
(5) An owner or operator may meet
the requirements of this section by
obtaining a trust fund for liability
coverage as specified in paragraph (j) of
this section.
(6) An owner or operator may
demonstrate the required liability
coverage through the use of
combinations of insurance, financial
test, guarantee, letter of credit, surety
bond, and trust fund, except that the
owner or operator may not combine a
financial test covering part of the
liability coverage requirement with a
guarantee unless the financial statement
of the owner or operator is not
consolidated with the financial
statement of the guarantor. The amounts
of coverage demonstrated must total at
least the minimum amounts required by
this section. If the owner or operator
demonstrates'the required coverage
through the use of a combination of
financial assurances under this
paragraph, the owner or operator shall
specify at least one such assurance as
"primary" coverage and shall specify
other assurance as "excess" coverage.
(7) An owner or operator shall notify
the Regional Administrator in writing
within 30 days (i) whenever a claim for
bodily injury or property damages
caused by the operation of a hazardous
waste treatment, storage, or disposal
facility is made against the owner or
operator or an instrument providing
financial assurance for liability
coverage under this section and (ii)
whenever the amount of financial
assurance for liability coverage under
this section provided by a financial
instrument authorized by paragraphs
(a)(l) through (a)(6) of this section is
reduced.
(b) Coverage for nonsudden
accidental occurrences. An owner or
operator of a surface impoundment,
landfill, or land treatment facility which
is used to manage hazardous waste, or a
group of such facilities, must
demonstrate financial responsibility for.
bodily injury and property damage to
third parties caused by nonsudden
accidental occurrences arising from
operations of the facility or group of
facilities. The owner or operator must
have and maintain liability coverage for
nonsudden accidental occurrences in
the amount of at least $3 million per
occurrence with an annual aggregate of
at least $6 million, exclusive of legal
defense costs. An owner or operator
who must meet the requirements of this
section may combine the required per-
occurrence coverage levels for sudden
and nonsudden accidental occurrences
into a single per-occurrence level, and
combine the required annual aggregate
coverage levels for sudden and
nonsudden accidental occurrences into
a single annual aggregate level. Owners
or operators who combine coverage
levels for sudden and nonsudden
accidental occurrences must maintain
liability coverage in the amount of at
least $4 million per occurrence and $8
million annual aggregate. This liability
coverage may be demonstrated as
specified in paragraphs (b) (1), (2), (3),
(4), (5), or (6), of this section:
*****
(2) An owner or operator may meet
the requirements of this section by
passing a financial test or using the
guarantee for liability coverage as
specified in paragraphs (f) and (g) of this
section.
(3). An owner or operator may meet
the requirements of this section by
obtaining a letter of credit for liability
coverage as specified in paragraph (h) of
this section.
(4] An owner or operator may meet
the requirements of this section by
obtaining a surety bond for liability
coverage as specified in paragraph (i) of
this section.
(5) An owner or operator may meet
the requirements of this section by
obtajning a trust fund for liability
coverage as specified in paragraph (j) of
this section.
(6) An owner or operator may
demonstrate the required liability
coverage through the use of
combinations of insurance, financial
test, guarantee, letter of credit surety
bond, and trust fund, except that the
owner or operator may not combine a
financial test covering part of the
liability coverage requirement with a
guarantee unless the financial statement
of the owner or operator is not
consolidated with the financial
statement of the guarantor. The amounts
of coverage demonstrated must total at
least the minimum amount required by
this section. If the owner or operator
demonstrates the required coverage
through the use of a combination of
financial assurances under this
paragraph, the owner or operator shall
specify at least one such assurance aa
"primary" coverage and shall specify
other assurance as "excess" coverage.
(7) An owner or operator shall notify
the Regional Administrator in writing
within 30 days (i) whenever a claim for
bodily injury or property damages
caused by the operation of a hazardous
waste treatment, storage, or disposal .
facility is made against the owner or
operator or an instrument providing
financial assurance for liability
coverage under this section and (ii)
whenever.the amount of financial
assurance for liability coverage under
this section provided by a financial
instrument authorized by paragraphs
(a)(l) through (a)(6) of this section is
reduced.
*****
(g) Guarantee for liability coverage.
(1) Subject^to paragraph (g)(2) of this
section, an owner or operator may meet
the requirements of this section by
obtaining a written guarantee,
hereinafter referred to as "guarantee."
The guarantor must be the direct or
higher-tier parent corporation of the
owner or operator, a firm whose parent
corporation is also the parent
corporation of the owner or operator, or
a firm with a "substantial business
relationship" with the owner or
operator. The guarantor must meet the
requirements for owners or operators in
paragraphs (ftf!) through (f)(6) of this
section. The wording of the guarantee
must be identical to the wording
specified hi § 264.151(h){2) of this part. A
certified copy of the guarantee must
accompany die items sent to the
Regional Administrator as specified in
paragraph (f)(3) of this section. One of
these items must be the letter from the
guarantor's chief financial officer. If the
guarantor's parent corporation is also
the parent corporation of the owner or
operator, this letter must describe the
value received in consideration of the
guarantee. If the guarantor is a firm with
a "substantial business relationship"
with the owner or operator, this letter
must describe this "substantial business
relationship" and the value received in
consideration of the guarantee.
*****
(h) Letter of credit foe liability
coverage. (1) An owner or operator may
satisfy the requirements of this section
by obtaining an irrevocable standby
letter or credit that conforms to the
requirements of this paragraph and
submitting a copy of the letter of credit
to the Regional Administrator.
(2) The financial institution issuing the
letter of credit must be an entity that has
the authority to issue letters of credit
and whose letter of credit operations are
regulated and examined by a Federal or
State agency.
(G] The wording of the letter of credit
must be identical to the wording
specified in § 264.151(k) of this part.
(i) Surety bond for liability coverage.
(1) An owner or operator may satisfy the
requirements of this section by
obtaining a surety bond that conforms to
the requirements of this paragraph and
submitting a copy of the bond to the
Regional Administrator.
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33952 Federal Register / Vol. 53. No. 170 / Thursday, September 1, 1988 / Rules and Regulations
(2) The surety company issuing the
- bond must be among those listed as
acceptable sureties on Federal bonds in
the most recent Circular 570 of the U.S.
Department of the Treasury.
(3) The wording of the surety bond
must be identical to the wording
specified in § 284.151(1] of this part.
(4) A surety bond may be used to
satisfy the requirements of this section
only if the Attorneys General or
Insurance Commissioners of (i) the State
in which the surety is incorporated, and
(!i) each State in which a facility
covered by the surety bond is located
have submitted a written statement to
EPA that a surety bond executed as
described in this section and
§ 284.151(1) of this part is a legally valid
and enforceable obligation in that State.
(j) Trust fund for liability coverage. (1)
An owner or operator may satisfy the
requirements of this section by
establishing a trust fund that conforms
to the requirements of this paragraph
and submitting aa originally signed
duplicate of the trust agreement to the
Regional Administrator.
(2) The trustee must be an entity
which has the authority to act as a
trustee and whose trust operations are
regulated and examined by a Federal or
State agency.
(3) The trust fund for liability
coverage must be funded for the full
amount of the liability coverage to be
Erovided by the trust fund before it may
e relied upon to satisfy the
requirements of this section. If at any
time after the trust fund is created the
amount of funds in the trust fund is
reduced below the full amount of the
liability coverage to be provided, the
owner or operator, by the anniversary
date of the establishment of the fund,
must either add sufficient funds to the
trust fund to cause its value to equal the
full amount of liability coverage to be
provided, or obtain other financial
assurance as specified in this section to
cover the difference. For purposes of
this paragraph, "the fuJl amount of the
liability coverage to be provided" means
the amount of coverage for sudden and/
or nonsudden occurrences required to
be provided by the owner or operator by
this section, less the amount of financial
assurance for liability coverage that is
being provided by other financial
assurance mechanisms being used to
demonstrate financial assurance by the'
owner or operator.
(4) The wording of the trust fund must
be identical to the wording specified in
§ 264.151(m) of this part
§294.151 [AmttKted]
4. In § 264.151 paragraph (b) is
amended by adding the following text to
the end of the "Financial Guarantee
Bond" to read as follows:
0») * *
Financial Guarantee Bond
*****
Or, if the Principal shall provide alternate
financial assurance, as specified in Subpart H
of 40 CFR Part 264 or 26S, as applicable, and
obtain the EPA Regional Administrator's
written approval of such assurance, within 90
days after the date notice of cancellation is
received by both the Principal and the EPA
Regional Administrator(s) from the
Surety(ies), then this obligation shall be null
and void; otherwise it is to remain in full
force and effect.
The Suretyfles) shall become liable on this
bond obligation only when the Principal has
failed to fulfill the conditions described
above. Upon notification by an EPA Regional
Administrator that the Principal has failed to
perform as guaranteed by this bond, the
Surety(ies) shall place funds in the amount
guaranteed for the facility(ies) into the
standby trust fund as directed by the EPA
Regional Administrator.
The liability of the Suretyfies) shall not be
discharged by any payment or succession of
payments hereunder, unless and until such
payment or payments shall amount in the
aggregate to the penal sum of the bond, but in
no event shall the obligation of the
Surety(ies) hereunder exceed the amount of
said penal sum.
The Surety(iea) may cancel the bond by
sending notice of cancellation by certified
mail to the Principal and to the EPA Regional
Administrators) for the Region(s} in which
the facility(ies) is (are] located, provided,
however, that cancellation shall not occur
during the 120 days beginning on the date of
receipt of the notice of cancellation by both
the Principal and the EPA Regional
Administrators), as evidenced by the return
receipts.
The Principal may terminate this bond by
sending written notice to the Surety(ies),
provided, however, that no such notice shall
become effective until the Surety(iea)
receivefs) written authorization for
termination of the bond by the EPA Regional
Administrator^) of the EPA Region(s) in
which the bonded facilities) is (are) located.
[The following paragraph is an optional .
rider that may be included but is not
required.] ;
Principal and Surety(ies) hereby agree to
adjust the penal sum of the bond yearly so
that it guarantees a new closure and/or post-
closure amount, provided that the penal sum
does not increase by more than 20 percent in
any one year, and no decrease in the penal
sum takes place without the written
permission of the EPA Regional
Administrator(a).
In Witness Whereof, the Principal and
Surety(ies) have executed this Financial
Guarantee Bond and have affixed their seals
on the date set forth above.
The persons whose signatures appear
below hereby certify that they are authorized
to execute this surety bond on behalf of the
Principal and Suretyfies) and that the
wording of this surety bond is identical to the
wording specified in 40 CFR 284.1Sl(b) as
such regulations were constituted on the date
this bond was executed.
Principal
[Signature(s)] -
[Name(s)]
[Title(s)]-
[Corporate seal]
Corporate Surety(ies)
[Name and address]
State of incorporation:]
Liability limit: $ .
[Signature(s)]
[Name(s) and title(s)]
[Corporate seal]
[For every co-surety, provide signature(s),
corporate seal, and other information in the
same manner as for Surety above.]
Bond premium: $ i
5. In § 264.151,.paragraph (gj is revised
to read as follows:
(g) A letter from the chief financial
officer, as specified in § 264.147(f) or
§ 285.147(f) of this chapter, must be
worded as follows, except that
instructions in brackets are to be
. replaced with the relevant information
and the brackets deleted.
Letter From Chief Financial Office?
[Address to Regional Administrator of
every Region in which facilities for which
financial responsibility is to be demonstrated
through the financial test are located.]
I am the chief financial officer of [firm's
name and address]. This letter is in support
of the use of the financial test to demonstrate
financial responsibility for liability coverage
[insert "and closure and/or post-closure
care" if applicable] as specified in Subpart H
of 40 CFR Parts 264 and 265.
[Fill out the following paragraphs regarding
facilitieti and liability coverage. If there are
no facilities that belong in a particular
paragraph, write "None" in the space
indicated. For each facility, include its EPA
Identification Number, name, and address.]
The firm identified above is the owner or
operator of the following facilities for which
liability coverage for [insert "sudden" or
"nonsudden" or "both sudden and
nonsudden''] accidental occurrences is being
demonstrated through the financial test
specified in Subpart H of 40 CFR Parts 264
and 265:
The firm identified above guarantees,
through the guarantee specified in Subpart H
or 40 CFR Parts 264 and 265, liability
coverage for [insert "sudden" or
"nonsudden" or "both sudden and
nonsudden"] accidental occurrences at the
following facilities owned or operated by the
following: - The firm identified above
is [insert one or more: (1) The direct or
higher-tier parent corporation of the owner or
operator; [2] owned by the same parent
corporation as the parent corporation of the
owner or operator, and receiving the
following value in consideration of this
guarantee _; or (3) engaged in the
following substantial business relationship
with the owner or operator , and
receiving the following value in consideration
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Federal Register / Vol. S3, Km. ISTj ff
September £, I98» /' Rules and Regulations 331953
of this guarantee .} [Attach a written
description of the business relationship or a
copy of the contract establishing such
relationship to this letter.)
[If you are using the financial test to
demonstrate coverage of both liability and
closure and post-closure care, fill in the
following four paragraphs regarding facilities
and associated closure and post-closure cost
estimates. If there are no facilities that belong
in a particular paragraph, write "None" in the
space indicated. For each facility, include its
EPA Identification Number, name, address,
and current closure and/ or post-closure cost
estimates. Identify, each cost estimate as to
whether it is for closure or post-closure care.]
1. The firm identified above owns or
operates the following facilities for which
financial assurance for closure or post-
closure care or liability coverage is
demonstrated through the financial test
specified in Subpart H of 40 CFR Parts 264
and 265. The current closure and/or post-
closure cost estimate covered by the test are
shown for each facility:
2. The firm identified above guarantees,
through the guarantee specified in Subpart H
of 40 CFR Parts 264 and 265, the closure and
post-closure care or-liability coverage of the
following facilities owned or operated by the
guaranteed party. The current cost estimates
for the closure or post-closure care so
guaranteed are shown for each, facility;
3. In States where EPA is not administering
the financial requirements of Subpart H of 40
CFR Parts 264 and 265, this firm is
demonstrating financial assurance for the
closure or post-closure care of the following
facilities through the use of a test equivalent '
or substantially equivalent to the financial
test specified in Subpart H of 40 CFR Parts
264 and 265. The current closure or post-
closure cost estimates covered by sucb a test
are shown for each facility: .
4. The firm identified above owns or
operates the following hazardous waste
management facilities for which financial
assurance for closure or, if a disposal facility,
post-closure care, is not demonstrated either
to- EPA or a State through the financial test or
any other financial assurance mechanisms
specified in Subpart H of 40 CFR Parts 264
and 265 or equivalent or substantially
equivalent State mechanisms. The current
closure and/or post-closure cost estimates
not covered by such financial assurance are
shown for each facility:
5. This firm is the owner or operator of the
following UIC facilities for which financial
assurance for plugging and abandonment is
required under 40 CFR Part 144. The current
closure cost estimates as required by 40 CFR
144.62 are shown for each facility: ______
This firm [insert "is required" or "is not
required"] to file a Form 10K with the
Securities and Exchange Commission (SEC}
for the latest fiscal year.
The fiscal year of this firm ends on [month,
day]. The figures for the following items
marked with an asterisk are derived from this
firm's independently audited, year-end
financial statements for the latest completed
fiscal year, ended [date].
[Fill in part A if yon are using the financial
test to demonstrate coverage only for the
liability requirements.] '
Part A. Liability Coverage for Accidental
Occurrences
[Fill in Alternative I ifthe criteria of
paragraph (f)(l)(i) of § 264.147 or 5 265.147
are used. Fill in-Alternative n if the criteria of
paragraph (f)(l)(ii) of § 264.147 or § 265.147
are used.]
ALTERNATIVE f
1. Amount of annual &...,......._._....
aggregate liability
coverage to be
demonstrated.
*2. Current assets- «... $..» ...
*3. .Current liabilities.. ._. $. ..... ....
4. Net working capital $. ..
*5. Tangible net worth ....., $_-._... ....
*6. If less than 90S or &.._.». _...
assets are located
in the U.S., given
total U.S. assets.
Yes No
7. Ialine5atlpa«*.f]f> ,_ .,
million?
8. la Una 4 at least « .., ...
time* line 1?
91 Is line 5 at least &
times line 1?
10. Are at least «H_ nf ,.,..,.,_
assets located in the
US.? If not,
complete Hne 11.
11- I» line 6 at least 3
times- line 1?
ALTERNATIVE N
1. Amrmnt of annual $, ..,.
coverage to be
2. Current hnnri rating of ,.._......_.._......,
most recent
issuance and name
of rating service.
3. Bate of issuance of ,,,,,,
bond.
4. Date of maturity nf .,._.._ _.__...
bond.
*5. Tangible net worth ._ $...___._........._.
*a Total assets in U.S. &....~..__.......
(required only if
less than 90% of
sssets are located
in the U.S.).
Yes No
7. Is line 5 at least $10
million?
». Is line 5 at leant 6 ;
times line 1?
S. Am at kutflt flfl* of .. ,.,,luijll_
asset* located in the
U_5.?Ifnot,
complete line 10.
10. la line 8 at leant B T -, 1UJ
times linel?
[Fill in part B if you are using the financial
teat to demonstrate assurance *bf both
liability coverage and closure or poet-closure .
care.]
Partff. Closure or Post-Closure Care and
Liability Coverage
[Fill in Alternative I if the criteria of
paragraphs (fj(l)(i) of S 264.143 or § 264.145
and (f](l}(i) of § 264.147 are used or if the
-criteria of paragraphs (e)(l)(i) of § 265.143 or
§ 265.145 and (f)(l)(i) of | 265.147 are used.
Fill in Alternative II if the criteria of
paragraphs (f)(l)(ii) of I 264.143 or | 264.145
and (f)(l)(ii) of § 264.147 are used or if the
criteria of paragraphs (e){l](iij of § 265.143 or
§ 265.145 and (f)(lj(ii) of § 265.147 are used.]
ALTERNATIVE 1
. 1. Sum of current closure $_..«_»...........
and post-closure
cost estimates (total
of all cost estimates
listed above).
2. Amount of annual $,..._
aggregate liability
coverage to be
demonstrated.
3. Sum of lines 1 and 2. $____... ..
*4. Total liabilities (if any S. _.... ..
portion of your
closure or post-
closure cost
estimates is
included in your
total liabilities, you
may deduct that
portion from this
line and add that
amnunt to lines 5
and 6). .
*S. Tangible net wnr+H , ,. £
*6. Net worth- ,.,........ $___...............
*7. Current assets ........n $____.
*8. Current liabilities _____ $,, .... l
9. Net wo^Ving capital $...._. ..._..
(line 7 minus line 8).
*10. The sum of net ' $. . ..
income plus
depreciation,
depletion, and
amortization.
11. Total assets in US. $.._
(required only if
less »h"i 90% of
assets are located
in the U.S.).
Yes No
12. Is line 5 at least $10
million?
13. Is line S at Jea«* A ,,,., . ,, Jt
times line 3?
14. la line a at least ft ;, ,
times line 3?
15. Are at least 9055 of .................
assets located in the
U.S.? If not,
complete line 16.
m IB line 11 at least a -,. ^
.times line 3?
17. Is line 4 divided by
line 6 less than 2.0?
18. Is line 10 divided by . _.........
line 4 greater than
0.1?
19. Is line 7 divided by ._ .
line 8 greater than
1.5?
ALTERNATIVE II
1. Sum of current closure $ -,.....
and post-closure
cost estimates (total
of all cost estimates
listed above).
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33954 Federal Register / VoL S3. No: 170 / Thursday. September 1, 1988 / Rules and Regulations
13. The Guarantor shall satisfy a third-
party liability claim only on receipt of one of
the following documents:
(a) Certification from the Principal and the
third-party claimant(s) that the liability claim
should be paid. The certification must be
worded as follows, except that instructions in
brackets are to be replaced with the relevant
information and the brackets deleted:
:j
Yes
No
2. Amount of annual
aggregate liability
coverage to be
demonstrated.
3, Sum of lines 1 and 2......
4. Current bond rating of
most recent
issuance and name
of rating service.
5. Date of issuance of
bond.
8. Date of maturity of
bond.
«7. Tangible not worth (if
any portion of the
closure or post-
dosura cost
estimates is
included in "total
liabilities" on your
financial statements
you may add that
portion to this line).
8. Total assets in the
US. (required only
if less than 90% of
assets are located
in the U.S.).
9. Is Una 7 at least S10
million?
10. Is line 7 at least 6
times Una 3?
11. Are at least 9OK of
assets located in the
UATIfnot
complete line 12.
12. Is line 8 at least 6
times Una 37
I hereby certify that the wording of this
letter is identical to the wording: specified in
40 CFR 204.151(8) as such regulations were
constituted on the date shown immediately
below.
[Signature] «
[Name]'
[Title]
pate]
& Section 264.151(h](2) is amended by
revising the heading for the "Corporate
Guarantee for Liability Coverage" to
read "Guarantee for Liability Coverage"
and by removing "corporate" from
paragraph (h}[2); and by removing
paragraph 12 of the "Guarantee for
Liability Coverage"; redesignating
paragraphs 4 through 11 as paragraphs S
through 12. adding new paragraphs 4,13
and 14; and revising paragraph 10; to
read as follows:
° * * « «
a»r *
(2)
Guarantc* for Liability Coverage
4. Such obligation does not apply to any of
the following:
(a) Bodily injury or property damage for
which [insert owner or operator] is obligated
to pay damage* by reason of the assumption
of liability in a contract or agreement. This
exclusion does not apply to liability for
damages that [insert owner or operator]
would be obligated to pay in the absnce of
the contract or agreement
(b) Any obligation of [insert owner or
operator] under a workers' compensation.
disability benefits, or unemployment
compensation law or any similar law.
(c) Bodily injury to:
(1) An employee of [insert owner or
operator] arising from, and in the course of.
employment by [insert owner or operator]; or
(2) The spouse, child, parent, brother or
sister of that employee as a consequence of.
or arising from, and in the course of
employment by [insert owner or operator].
This exclusion applies:
(A) Whether [insert owner or operator]
may be liable as an employer or in any other
capacity; and
(B) To any obligation to share damages
with or repay another person who must pay
damages because of the injury to persons
identified in paragraphs (1) and (2].
(d) Bodily injury or property damage
arising out of the ownership, maintenance.
use. or entrustment to others of any aircraft,
motor vehicle or watercraft
(e) Property damage to:
(1) Any property owned, rented, or
occupied by [insert owner or operator];
(2) Premises that are sold, given away or
abandoned by [insert owner or operator] if
the property damage arises out of any part of
those'premises:
(3) Property loaned to [insert owner or
operator];
(4) Personal property in the care, custody
or control of [insert owner or operator];
(5) That particular part of real property on
which [insert owner or operator] or any
contractors or subcontractors working
directly or indirectly on behalf of [insert
owner or operator] are performing
operations, if the property damage arises out
of these operations.
* *
10. [Insert the following language if the
guarantor is (a) a direct or higher-tier
corporate parent, or [b) a firm whose parent
corporation is also the parent corporation of
the owner or operator]:
Guarantor may terminate this guarantee by
sending notice by certified mail to the EPA
Regional Administrators) for the Region(s) in
which the facility(ies) is(are) located and to
[owner or operator], provided that this
guarantee may not be terminated unless and
until [the owner or operator] obtains, and the
EPA Regional Administrators) approve(s),
alternate liability coverage complying with 40
CFR 264.147 and/or 235.147.
[Insert the following language if the
guarantor is a firm qualifying as a guarantor
due to its "substantial business relationship"
with the owner or operator]:
Guarantor may terminate this guarantee
120 days following receipt of notification.
through certified mail, by the EPA Regional
Administratorfs) for the Region(s) in which
the facility(ies) is(are) located and by [the
owner or operator].
Certification of Valid Claim
The undersigned, as parties [insert
Principal] and [insert name and address of
third-party claimant(s)], hereby certify that
the claim of bodily injury and/or property
damage cuased by a [sudden or nonsudden]
accidental occurrence arising from operating
[Principal's] hazardous waste treatment,
storage, or disposal facility should be paid In
the amount of S( ].
[Signatures]
Principal
(Notary) Date
[Signatures]
Claimant(s)
(Notary) Date
(b) A valid final court order establishing a
judgment against the Principal for bodily
injury or property damage caused by sudden
or nonsudden accidental occurrences arising
from the operation of the Principal's facility
or group of facilities.
14. In the event of combination of this
guarantee with another mechanism to meet
liability requirements, this guarantee will be
considered [insert "primary" or "excess"]
coverage. ' . .
I hereby certify that the wording of the
guarantee is identical to the wording
specified in 40 CFR 264.151(h)(2) as such
regulations were constituted on the date
shown immediately below.
Effective date:
[Name of guarantor]
[Authorized signature for guarantor]
[Name of person signing]
[Title of person signing]
Signature of witness of notary:
7. In § 264.151(i), paragraph 2.(d) of the
"Hazardous Waste -Facility Liability
Endorsement" is revised to read as
follows:
Hazardous Waste Facility Liability
Endorsement
*****
(2) * ' *
(d) Cancellation of this endorsement,
whether by the Insurer, the insured, a parent
corporation providing insurance coverage for
its subsidiary, or by a firm having an
insurable interest in and obtaining liability
insurance on behalf of the owner or operator
of the hazardous waste management facility,
will be effective only upon written notice and
only after the expiration of 60 days after a
copy of such written notice is received by the
Regional Administrators) of the EPA
Region(s) in which the facility(ies) is(are)
located.
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